In his weekly business finance post CFO Greg Taylor looks at what recent interest rate cuts means for business.
There was good news last month for many businesses with the Reserve Bank (RBA) cutting interest rates by 0.25 per cent to historic lows. Some lenders such as The Greater cut rates by more than the RBA (including credit card rates cut by 1%).
For those with debt finance, such as business loans, or overdrafts or lines of credit, the cut means lower repayments or the ability to pay off the loan faster.
For those who are looking to borrow to establish or expand a business the rate cut is also good news. The money you need has become cheaper in effect. It makes it easier for businesses to invest and employ more people or make some profit and keep people employed.
The other reason why the Reserve Bank sought to cut interest rates was to put downward pressure on the Australian dollar. While the high value of our currency is good news for people buying imported goods and those travelling overseas for holidays, it is not good for Australian manufacturers or exporters. A higher dollar is not always a good thing. The winner is not necessarily the country with the highest exchange rate. With a lower exchange rate, Australian made goods and home grown services become relatively cheaper than imported goods and services.
The news is not as good if you are an importer.
The other theoretical benefit of rate cuts is that people with reduced mortgage repayments home-owners have more money in their pocket to spend on goods and services. This assumes consumers don’t just pay off their mortgage faster or cut other debt.
Whatever category your business is in, the cut in rates is something you need to look at. Talk to your business banker or accountant to make sure you are benefiting or able to weather the impact of the cut in rates.
The $64 question is will the RBA cut again?
This blog is based on Greg's latest weekly column in The Post newspaper.